In 2018, owning a home is considered a more desirable option than renting. Recent research by the Yorkshire Building Society revealed that being a homeowner is more important to young adults than establishing a successful career, or finding the right partner.
However, the likelihood of this is lower than ever before because the increase in house prices has far surpassed income growth. The Institute for Fiscal Studies stated that the chances of 25-34 year olds, with an after-tax income of £22,200-£30,600, owning a home has more than halved in the past 20 years.
This has led to the emergence of ‘Generation Rent’ – a cohort of young adults aged 20-39, living in rented accommodation, who are unlikely to own their own home due to expensive house prices. Alongside the difficulty of buying property, private renting has also become increasingly challenging in recent years as demand has skyrocketed.
Declining rental stock
Buy-to-let tax relief changes have put financial pressure on landlords, with the amount of tax paid on rental income rising significantly, while earnings are dropping.
New rules will force the percentage of mortgage interest payments that landlords can deduct from rental income to drop by 25% yearly until 2020. This leaves those with lower profit margins at risk of negative equity.
Established landlords with four or more properties are also affected by recent harsher lending restrictions, making it more difficult to borrow money for buy-to-let investments.
These reforms may have indirectly sparked a drop in the number of rental properties available, as they offer landlords a reason to abandon the sector and look at investment opportunities elsewhere.
The changes are also deterring smaller investors. According to Home.co.uk, there has been a recorded decline in the number of rental properties available for first time in 18 years.
This shortage highlights the need for change as the private rental sector makes up 20% of housing stock in the UK. Evidently, the reforms are having a profound impact on buy-to-let investments.
The problem is more prominent in the South. According to Rightmove, rental prices in London have risen by 3.4% over the last 12 months, largely due to a shortage of properties in the area.
In contrast, the rental market in northern cities like Liverpool and Manchester is collectively positive for now, as they attempt to cater to young professionals chasing affordable prices. However, this only further highlights the need for more buy-to-let properties.
The concept of ‘Generation Rent’ is a true representation of the UK’s housing trend, where young people are seeking temporary living space. This ensures that rental stock is in constant demand.
It’s crucial for the government to make the market more viable for buy-to-let landlords and smaller investors if demand is to be met. The current legislation reforms and restrictions are making it too difficult and urgently need reviewing.